Archive for June 1st, 2015


the war on cash

When I was doing my research for the “Tin Foil Hat Report,” I ran across this 2012 posting on Youtube recounting one customer’s failure in getting Bank of America to accept cash for his house payment:


It got me to thinking. I had been hearing for months that the banks—which themselves are the owners of the Federal Reserve—have a movement afoot to refuse to accept Federal Reserve notes in payment of certain debts, so I went out on the Internet to research this development and find out what is really going on.

I found this recent post on the website Zero Hedge:


Largest Bank In America Joins War On Cash

Buiter defended his “controversial” call for a ban on cash, as Bloomberg reports:

“The world’s central banks have a problem. When economic conditions worsen, they react by reducing interest rates in order to stimulate the economy. But, as has happened across the world in recent years, there comes a point where those central banks run out of room to cut — they can bring interest rates to zero, but reducing them further below that is fraught with problems, the biggest of which is cash in the economy.”

In a new piece, Citi’s Willem Buiter looks at this problem, which is known as the effective lower bound (ELB) on nominal interest rates. Fundamentally, the ELB problem comes down to cash. According to Buiter, the ELB only exists at all due to the existence of cash, which is a bearer instrument that pays zero nominal rates. Why have your money on deposit at a negative rate that reduces your wealth when you can have it in cash and suffer no reduction? Cash therefore gives people an easy and effective way of avoiding negative nominal rates. Buiter’s note suggests three ways to address this problem:

• Abolish currency;

• Tax currency; and

• Remove the fixed exchange rate between currency and central bank reserves/deposits.

Yes, Buiter’s solution to cash’s ability to allow people to avoid negative deposit rates is to abolish cash altogether. (Note that he’s far from being the first to float this idea. Ken Rogoff has given his endorsement to the idea as well, as have others.)

Before looking at the practicalities of abolishing currency, we should first look at whether it could ever be necessary. Due to the costs of holding large amounts of cash, Buiter puts the actual nominal rate at which the move to cash makes sense as closer to -100bp. So, in order for a cash abolition to become necessary, central banks would need to be in a position where they wished to set nominal rates much lower than that.

Buiter does not have to go far to find an example of where a central bank may have wanted to set interest rates much lower to -100bp. He uses (a fairly aggressive) Taylor Rule to show that Federal Reserve rates should have been as low as -6 percent during the financial crisis.”

As mentioned above, no meddling by a central bank is ever too extreme or too crazy for Mr. Buiter. But now the banks themselves are getting involved, (as Mises’ Joseph Salerno notes),

“The war against cash has, up to now, been waged almost exclusively by national governments and official international organizations, although there are exceptions.  Now the war has acquired a powerful new ally in Chase, the largest bank in the US and a subsidiary of JP Morgan Chase and Co., according to Forbes, the world’s third largest public company.

Of course, it is hardly surprising that a crony capitalist fractional-reserve bank, which received $25 billion in bailout loans from the US Treasury, should want to curry favor with its regulators and  political masters and, in the process, ensure its own stability by helping to stamp out the use of cash.  For the very existence of cash places the power over fractional-reserve banks squarely in the hands of their depositors who may withdraw their cash in any amount and at any time, bringing even the mightiest bank to its knees literally overnight (e.g., Washington Mutual).

What is a surprise is how little notice the rollout of Chase’s new policy has received.

• As of March, Chase began restricting the use of cash in selected markets, including  Greater Cleveland.

• The new policy restricts borrowers from using cash to make payments on credit cards, mortgages, equity lines, and  auto loans.

• Chase even goes as far as to prohibit the storage of cash in its safe deposit boxes.  In a letter to its customers dated April 1, 2015 pertaining to its “Updated Safe Deposit Box Lease Agreement,”  one of the highlighted items reads:  “You agree not to store any cash or coins other than those found to have a collectible value.”  Whether or not this pertains to gold and silver coins with no numismatic value is not explained.

As one observer commented:

“This policy is unusual but, since Chase is the nation’s largest bank, I wouldn’t be surprised if we start seeing more of this in this era of sensitivity about funding terrorists and other illegal causes.”

Bet on it.

As we previously concluded, we keep being bombarded by moves to restrict the use of cash and demands to ban it altogether. These demands seem to mainly revolve around two arguments:

• One is that “only criminals need cash,” which is on a par with the absurd assertion that we should all be fine with Stasi-like ubiquitous government surveillance “if we have nothing to hide”; and

• The other one is that a cash ban would make life easier for the central planners who are actively undermining the economy with their policy of debasement.

We would argue that central banking and fiat money have done more than enough harm already and that the eradication of financial privacy has gone way too far. Money and banking should be freed from the clutches of government-directed monopolization and cartelization and should be returned to the free market.

In short, things in the already insane monetary realm are about to get a whole lot insane-er. But don’t worry, the central banks are in full control.


I think the war on cash can be explained in very simple terms. The banks want to restrict cash DEPOSITS, as well as the use of cash to pay debts. They want to keep our “wealth” segregated within the control of the banks, and not subject to the tests of objectivity. By outlawing cash, they seek to place a higher value on transfers within their banking system than any tangible form of money beyond its control.

In 1913 you could buy as much with a dollar as you could with $23.63 in 2014, more than 100 years later. By 1920, the dollar had lost about half its value, and was worth $11.48 in today’s value. By 1950, the dollar’s value had dropped to $9.53, even lower than before the Depression. It has fallen ever since: 1960 = $7.76; 1970 = $5.92; 1980 = $2.79; 1990 = $1.76; 2000 = $1.33; 2010 – $1.05. While the dollar’s nominal value is $1.00, its buying power is comparable to what 4 cents would buy 100 years ago when the Federal Reserve was created and began creating currency out of thin air.

Our dollars are loaned to the federal government by the Federal Reserve, a private central banking cartel, and the dollars must be paid back. Not only must the dollars be paid back to the Federal Reserve, they must be paid back with interest!

Today’s money is backed by nothing at all. Governments used to be able to redeem Federal Reserve notes in a comparable amount of value in gold, but all that changed in 1971, when Richard Nixon announced that the United States was abrogating its commitment to foreign governments under the Bretton Woods agreement to redeem their dollars for gold at the fixed value of one ounce per $35. In 1973, a deal was struck between Saudi Arabia and the United States in which every barrel of oil purchased from the Saudis would be denominated in US dollars. You might say that for the last 42 years when US dollars were the world’s reserve currency, our dollars have been backed by oil—but cracks in that system have opened up as a result of other nations’ attempts to periodically trade oil in other currencies like the Euro, Yuan, or Rubles.

These attempts showed that an artificial demand for US dollars had been created around the globe. As the US dollar continued to lose purchasing power, several oil-producing countries began to question the wisdom of accepting increasingly worthless paper currency for their oil supplies. Today, several countries have attempted to move away—or already have moved away—from the petrodollar system. Examples include Iran, Syria, Venezuela, and North Korea… the “axis of evil,” if you will.

The banks know they must perpetuate the bubble if the economy is to survive. They know their currency’s days of being backed by oil are numbered, that worldwide demand for oil is itself artificial—that the emperor has no clothes. The economy is kept aloft not by assets, but by debt and derivatives, which is illusory. Hence, their desperate war on cash. It is just a matter of time.




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Listen to Dido performing “Worthless


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